level of ethics and integrity and internal audit

Journal of Governance and Integrity (JGI) ISSN: 2600-7479; e-ISSN: 2600-786X; Volume 1, Issue 2, 83-119, July 2018 ©Universiti Malaysia Pahang

83

LEVEL OF ETHICS AND INTEGRITY AND INTERNAL AUDIT CAPABILITY: A COMPARISON OF TWO

MALAYSIAN PUBLIC SECTOR ORGANIZATIONS Asmawati Sajari1*, Hasnah Haron1, Ishak Ismail1, Nur Ain Zakiah

Mohd Yusof1, Roszaini Haniffa2

1Faculty of Industrial Management, Universiti Malaysia Pahang, Malaysia

2Heriot-Watt University, United Kingdom *Corresponding email: [email protected]

ABSTRACT

The main purpose of this paper is to explain the possible influence of internal audit capability on the level of ethics and integrity in Malaysian public sector organizations i.e., Federal Statutory Body (FSB) and State Statutory Body (SSB). An explanatory case study method is used to collect the data whereby semi structured interviews, informal conversations, questionnaire and document reviews are conducted. The level of ethics and integrity is measured based on the Corporate Integrity System Malaysia (CISM) dimensions while the level of internal audit capability is measured using the Internal Audit Capability Model (IACM). SSB scored higher with a score of 70.85% as compared to FSB with a score of 66.1% in CISM dimensions. Overall, a score of more than 50% indicates that both organizations are serious in initiating proper integrity mechanism to maintain the highest levels of transparency, integrity and professionalism in their daily activities and at their work place. However, in terms of IACM, FSB fared better with a score of 76%, with a capability level of 2 as compared to SSB with a score of 71% with a capability level of 1. Further in-depth study is highly recommended to get more insight on the findings. Keywords: CISM, IACM, Ethics and Integrity, Case Study, Public Sector, Malaysia

INTRODUCTION

The issue of governance in the public sector has in recent years received substantial attention following concerns on the rise of corruptions and fraudulent activities involving tax payers’ money and the nation’s resources. The continuous stream of governance failures, fraud,

Level of Ethics and Integrity and Internal Audit Capability: A Comparison of two Malaysian Public Sector Organization

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inefficiency, corruption, and poor internal control and financial management (Rosli, Aziz, Mohd & Said, 2015) have had devastating effects on social and economic development causing such issues to emerge as a global phenomenon that needs to be addressed effectively (Malaysian Anti-Corruption Commission [MACC] Official Website, 2016). While the United Nations Convention Against Corruption (UNCAC) provides International instruments to tackle corruption at the global level, there is an urgent need for a smaller and more informal network of professionals to cooperate in tackling the complex nature of corruption practices and a range of related issues in the spirit of sincere cooperation and mutual assistance. Thus, the Southeast Asia Parties against Corruption (SEA-PAC) was established to fulfil this significant role. Malaysia is one of the SEA-PAC members along with Brunei, Cambodia, Indonesia, Laos, Myanmar, Philippines, Singapore, Thailand and Vietnam (Malaysian Anti-Corruption Commission [MACC] Official Website, 2016). According to the Asia Pacific Fraud Survey Report Series 2013, Malaysia and China have both been ranked as countries with the highest level of bribery and corruption. Another recent survey by Transparency International on Corruption Perceptions Index (2013) has shown that Malaysia scored 50 and has managed to advance one slot in the rankings from 54 to 53 out of 177 countries. However, it still remained in the average range of corruption perceptions by the people, suggesting that the graft-fighting measures are still inadequate (The Sunday Daily, 2013). Despite the government taking measures to restore public confidence, there is still room to further improve the public perceptions towards public sector accountability (Said, Alam, & Khalid, 2016). Based on the Corruption Perception Index (CP1) cases of allegations of corruptions in the newspaper and social media showed that unethical behaviour and lack of integrity are critical issues facing the Malaysian public sector. As shown in Table 1, out of 588 cases investigated and arrests made up till July 2016, almost half (296 cases) involved public sector officials.

Asmawati Sajari et al.

85

Table 1 Annual Statistics on Arrest as of July 2016 (n=588)

Month

Jan

Feb

Mac

Apr

May

Jun

Jul

Tot

al

Top Management 0 0 1 0 0 0 0

Public Official

Professional and Management

15 6 7 7 5 23 5

Support Staff 38 39 31 25 42 33 19

Total 53 45 39 32 47 56 24 296

Private Sector 30 8 44 28 14 9 6

Civilian General Public 23 14 21 30 36 14 13

Local Councillor 0 0 0 0 0 0 0

Politician 0 0 1 0 0 1 0

Total 53 22 66 58 50 24 19 292

In another statistical report, as illustrated in Figure 1, it can be seen that almost 50% of total offenders of corruption cases involves government employees and statutory bodies. This figure is alarming and should be a cause of concern to the government if it wants to gain public confidence. Although various initiatives have been undertaken, there has not been much change as they failed to address the fundamental issues related to work ethics and integrity in the Malaysian public sector.


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Figure 1 Offenders Corruption Statistics 2016

Source: Adapted and revised from MACC Official Website (2016)

One aspect that needs particular attention in ensuring good governance and accountability of organizations is the existence of a high quality internal audit function (Goodwin, 2004). Following the financial crisis and accounting scandals, the roles of internal auditing as well as internal control and its responsibilities on corporate governance and firm performance has expanded (Shenkir & Walker, 2006). Internal auditing is an independent, objective assurance activity that is designed to add value and improve an organization’s operations. In addition, it helps an organization to accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes (Institute of Internal Auditors Research Foundation, 2009). Generally, in public-sector organizations, the internal audit function holds a high potential for promoting accountability and improving government performance. Thus, not surprisingly, several countries, such as Australia, Canada and United States, have developed policies aimed at strengthening the public sector internal audit functions to enhance their capacity in contributing to these goals (Ali, Sahdan, Saad & Gloeck, 2012; Newcomer, 1998). Some of the policy measures include requiring the establishment of internal audit units, rigorous standards for the professional conduct of internal audit work, training, resource allocation, expanding reporting arrangements, and broadening mandates to make auditors responsible for performance assessment (Ali, et al., 2012).

Public organizations in Malaysia have faced widespread criticism regarding their perceived lack of financial discipline, good governance and accountability (Khalid, 2010). According to the Auditor General of


87

Malaysia, internal audit function could play a proactive role as a monitoring mechanism and in examining ongoing projects. It may assist public sector entities in achieving their objectives effectively, efficiently, economically and ethically by providing unbiased and objective assessments (Ahmad, Othman, Othman & Jusoff, 2009). In Malaysia, the requirement to adopt internal audit function in the public sector was documented in the Treasury Circular No. 9, 2004. This circular requires the formation of Internal Audit function at the Ministral, Departmental and State Government levels and also among agencies and departments in the State Governments. However, this requirement excludes the state agencies, local authorities and state economic development corporations, implying that internal audit is not a necessity in these organizations (Ahmad et al., 2009). In 2011, 1 Treasury Circular (1PP) was mandated under two main sections. The Treasury Circular PS 3.1/2013 outlines the roles and responsibilities of the Internal Audit unit, the Ministry Secretary or Head of Federal Department or State Secretary and the Treasury of Malaysia while the Treasury Circular PS 3.2/2013 explains the requirements and responsibilities of the Audit Committee at both the federal ministry and state government levels (Ministry of Finance Malaysia, 2016).

Despite the internal audit function has long been a requirement in organizations, its quality and effectiveness have always been questioned. More importantly, is the internal audit unit able to ensure the incorporation of ethics and integrity in the organization? Therefore, this paper attempts to explain the possible influence of internal audit capability on the level of ethics and integrity.

LITERATURE REVIEW

The Malaysian public sector, formerly known as the Malaysian Civil Service (MCS), constitutes three levels viz. Federal, State and Local Government. At the top level is the Federal Government, which is in essence the Central Government. It consists of 25 Federal Ministries headed by their respective Ministers and administrative heads, known as Secretary-Generals. The next level comprised of 13 State Governments that oversee the implementation of the state functions along with the Federal Departments. The State Governments are responsible for their own revenues and expenditures even for projects undertaken at the state level but agreed upon by the Federal Government in the Concurrent List and Federal List in the Constitution of Malaysia. There are federal statutory bodies and state statutory bodies that are established for the purpose of implementing specific duties and responsibilities in line with the national objectives. At the bottom level is the local government. Given the complexity of the public sector structure, it is vital for the Malaysian


88

government to adopt a more comprehensive procedure and guidelines, especially in relation to the planning and control of financial matters (Ali, 2015).

Combating corruption or promoting integrity has become a major component of governmental reforms in many countries and Malaysia is no exception to this rule. The Malaysian government, through its Economic Transformation Program (ETP), is aiming for the country to become a high-income nation by the year 2020. Therefore, the Anti-Corruption Agency was set up in 1967 with clear mandates and was reformed and revitalized subsequently to make it more effective in combating corruption and all forms of mal-administration in the society. Taken together, Malaysia has an elaborate anti-corruption framework. The efforts undertaken in achieving some significant milestones in this long and challenging journey is shown in Table 2. Yet, Malaysia presents an interesting case where the level of corruption has remained high and most of the strategies and recent campaigns appear to have failed to make any difference in containing and combating corruption in the society (Siddiquee, 2010).

Table 2 Milestones of Anti-Corruption Strategy in the Public Sector

Year Milestones

2004 : Launching of the National Integrity Plan (NIP) and Establishment of Institute of Integrity Malaysia (IIM)

2008 : Setting up of Malaysian Anti-Corruption Commission (MACC)

2009 : Prime Minister Directive No. 1 2009 – Implementation of Certified Integrity Unit (CeIO) in ministries, departments and public agencies.

2010 :

Launching of the Government Transformation Programme (National Key Results Areas – Fighting Corruption) and Economic Transformation Programme. Signing of Integrity Pledge by Chamber of Commerce with Malaysian Anti-Corruption Commission (MACC), Formulation of Corporate Integrity System Malaysia (CISM) Roundtable

2011 : Creation of Corporate Integrity Pledge (CIP) 2012 : Publication of Best Business Practice Circular (3/2012) 2013 : Appointment of Minister of Governance and Integrity

2014 :

Prime Minister Directive No. 1 2014 - Establishment of Integrity and Governance Committee (replacing the Prime Minister Directive No.1 2009). Publication of Corporate Integrity System Malaysia (CISM) Toolkit: From Pledge to Practice

Source: Adapted and revised from Corporate Integrity System Malaysia (CISM) Official Website


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In June 2014, the Prime Minister Directive was released giving mandate for the establishment of the Integrity and Governance Committee in all ministries and states departments. Prior to that, Circular No. 6 2013, stated the requirement for the establishment of an Integrity Unit in all government agencies to ensure that civil servants adopt an integrity and ethical culture. MACC is held responsible for conducting agencies’ risk-rating to determine the appropriate model for the Integrity Unit. The risk level is classified as high, medium or low. Agency Integrity Management Division under MACC is responsible for the conduct of research, along with planning, drafting and developing internal control policy and institutionalization of integrity initiatives for Integrity Units within the ministries, state governments, departments and government agencies. This initiative is expected to help curb criminal misconduct and violations of the code of conduct and ethics in civil service organizations. The unit will act as a focal point to all matters related to integrity management based on six core functions (MACC Official Website, 2016) as shown in Table 3. To ensure the effectiveness of the implementation of the integrity unit, the Chief Integrity Unit is required to submit a report to the General Secretary/Head of Department and Agency Integrity Management Division every four months i.e. before 15th May, September and January.

Table 3 Core Function of Integrity Unit Core Functions

Implementation

Governance Ensuring the best of governance implemented Strengthening of integrity

Ensure that the acculturation, institutional and implementation of integrity within the organization.

Detection and confirmation

i) Detecting and verify the complaint criminal misconduct and violations of the code of conduct and ethics of the organization and ensure that appropriate actions are taken. ii) Reported criminal misconduct enforcement agencies responsible.

Management of Complaints

Receive and take action on all complaints / information on criminal misconduct and violations of the code of conduct and ethics organizations.

Compliance Ensure compliance with the laws and regulations in force. Disciplinary Perform the functions of the secretariat Disciplinary Board

Source: Adapted and revised from JPA (BPO) (S) 215/65 Jld. 13 (8), Public Administrative Departments

To measure the level of corporate ethics and integrity, the study by Rosli et al. (2015) used the Corporate Integrity Assessment Questionnaire (CISM) developed by the Institute of Integrity Malaysia (IIM). CISM is a tool that was introduced and made available by the Malaysian Institute of


90

Integrity (IIM) in the late 2010 to encourage organizations to assess and measure their progress in making a formal and transparent commitment towards ethics and integrity in the working environment. They used these 12 dimensions of corporate integrity system as shown in Table 4 in their study. Said and Omar (2014) conducted a study to analyze the level of integrity of two giant government linked companies using the Corporate Integrity System. They found the level of ethics and integrity for both companies to be on average above 50%. More specifically, the level of ethics and integrity of company A (Utility Company) was found to be higher (67.7%) than that of company B’s (Healthcare Company, 59.7%). Furthermore, Company A was found to score higher than Company B in terms of Vision and Goals, Legal Compliance, Policies and Rules and Corporate Social Responsibility. The highest score for both companies was on Corporate Social Responsibility and lowest in terms of Infrastructure, which suggests that these two leading GLCs placed less emphasis on integrity infrastructure to support the companies to carry out its integrity’s goals effectively (Said & Omar, 2014).

Table 4 Dimensions of Corporate Integrity System Dimension Description Vision and Goals

This dimension covers the organization’s overall concept of and approach to ethics and integrity, including its formal articulation of the organization’s underlying philosophy about ethical and moral conduct, and how these expectations are embedded in the organization

Leadership Covers the responsibilities of the organization’s leadership in shaping, guiding, and supporting the organization’s ethics and integrity initiatives

Infrastructure Explores the way the organization structures or organizes its ethics and integrity function so that it can carry out its goals effectively.

Legal Compliance, Policies and Rules

This category assesses the internal framework that provides the floor for ethical behavior. It also includes compliance with the external legal framework, established by the multiple jurisdictions and legal frameworks within which the organization operates.

Organizational Culture

This dimension covers the organization’s overall concept of and approach to ethics and integrity, including its formal articulation of the organization’s underlying philosophy about ethical and moral conduct, and how these expectations are embedded in the organization.


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Table 4 Dimensions of Corporate Integrity System (continued) Dimension Description

Disciplinary Assess how the organization sets and enforces its standards for ethical conduct and behaving with integrity. This category addresses rewards and punishments, incentives that promote ethical behavior, and disciplinary action taken to limit or punish unethical work conduct.

Measurement Research and Assessment

Evaluates how ethics and integrity are measured, whether the organization undertakes research to support ethics strategies that create a culture of ethics and integrity`

Confidential Advice and Support

Describes how the organization provides confidential, neutral, professional, and independent ethics advice to employees, supervisors, managers, executives, members of governing bodies, and other stakeholders.

Ethics Training and Education

Explores ethics and integrity awareness, skill-building training and education, and the integration of such training into the overall development of all employees. This category includes the provision of ethics-related training and skill building throughout the life cycle of staff members, and the degree to which these initiatives are integrated into other organization-wide training commitments.

Ethics Commination

Describes how the ethics and integrity initiative is articulated and promoted, both internally and externally. This category covers how the organization defines its stakeholders and how it gears its key messages to distinct audiences

Whistleblowing Explores how the organization encourages individuals (both internal and external to the entity) to speak up and make reports of questionable conduct

Accountability Mechanisms intended to ensure that governing institutions and personnel faithfully perform the duties they owe to citizens, businesses, and other stakeholders. Accountability operates by specifying the relationships between public officials’ behavior and performance on one hand, and rewards and punishments on the other. It can be thought of in three layers: between voters and politicians, between politicians and bureaucrats, and between superior and subordinate public officials. (Lanyi & Azfar, 2005)

As cited in Abuazza, Mihret, James, and Best (2015), the internal audit departments have become an important part of the organizational structures as a value-adding service (Al-Twaijry et al., 2003; Arena and Azzone, 2009; Bou-Raad, 2000; Coram et al., 2008; Enyue, 1997; Goodwin, 2004; Yee et al., 2008). (Burnaby & Hass, 2011) state that increased globalization and cross-border trades have enhanced the importance of internal auditing activities within organizations when


92

conducting business with neighboring countries. The importance of internal audit has also been confirmed in legislation such as the Sarbanes Oxley Act (SOX) (2002) in the USA and the Corporate Law Economic Reform Program Act 2004 in Australia (Carey et al., 2006). The occurrence of losses and financial scandals has resulted in an increased focus on internal audit as an important consideration in organizations (Arena et al., 2006; Coram et al., 2008; Schneider, 2003). (Al-Twaijry, Brierley, & Gwilliam, 2003) state that internal audit departments provide benefits to organizations by helping to improve organizational operations and manage risk, prevent and detect mistakes or fraud, and safeguard assets. The function of internal audit is very useful because it can minimize fraud and corruption in organization (Mihret et al., 2010; Yee et al., 2008). However, findings of a prior study by (Ali et al., 2007) indicate nearly 75 % of the states and local government bodies moderately agree that there is a lack of understanding on the role of internal audit as an independent appraisal function within an organization.

The role of internal audit is to investigate the fraud and abuse in organizations (Chambers & Odar, 2015). In the USA, partly in response to the fraud problem, the American Institute of Certified Public Accountants (AICPA) implemented Statements on Auditing Standards (SAS) No. 82, Consideration of Fraud in a Financial Statement Audit, in December 1997 (AICPA, 1998b; as cited in (Hillison, Pacini, & Sinason, 1999). Standard of Internal Audit (SIA)No. 3 clearly indicates that prevention of fraudulent is the responsibility of management, but it is well established that internal auditors are responsible for determining the adequacy and effectiveness of management's actions. Fundamental to this responsibility is the examination and evaluation of an entity's internal controls. The purpose of internal control is much broader than merely to prevent fraud, but that is certainly one purpose of internal controls (Flesher, 1996). Besides determining fraud, the internal auditor also: (1) evaluate the control environment, (2) identify indicators or signals of fraud, (3) identify weaknesses which may allow fraud to occur, (4) recommend investigations where appropriate, (5) communicate with management regarding fraud occurrences and (6) assist in the prosecution of fraud perpetrators (Ratliff et al., 1996). Fraud can affect financial statement trends and ratios. Accounts that are manipulated to conceal a fraud may manifest unusual relationships with other accounts that are not manipulated. Also, the erratic patterns in periodic account balances may occur because the fraudster may only engage sporadically in a fraudulent activity. Financial analysis conducted by the internal auditor may reveal the presence of unexpected relationships or the absence of expected relationships. A review of company contracts and agreements may reveal possible contract fraud,


93

including kickbacks, bribery, or conflicts of interest by the organization's employees (Hillison et al., 1999).

Consequently, it is assumed in this research that a capable internal audit function may enhance the role in fraudulent detection and serves as one of the factors to increase level of ethics and integrity in organization.

METHODOLOGY

This research uses the explanatory case study approach to explain the Level of Ethics and Integrity in two public sector entities i.e. federal statutory body (FSB) and state statutory body (SSB). Both cases are located in the East Coast Region of Peninsular Malaysia. Data were gathered from both primary and secondary sources comprising the following:

i. interviews with head of internal audit unit cum head of integrity unit. All interviews were tape-recorded and transcribed for analysis;

ii. internally generated documents made available by the head of integrity unit. These documents were reviewed; and

iii. questionnaires were distributed to assess the levels of ethics and integrity and internal audit capability level of the two organizations.

Prior to visiting the organizations, their official websites were

reviewed in order to understand the organizations better. This includes looking at the history of the organizations and their organizational charts. To gain deeper insight on the research area, interviews with the Institute of Integrity Malaysia (IIM), Malaysian Anti-Corruption Commission (MACC), Malaysian Anti-Corruption Academy (MACA), Institute of Internal Auditor Malaysia (IIAM), National Audit Department (NAD) of Malaysia and researchers from public universities were conducted between December 2015 to August 2016. The questionnaire consists of 12 demographic questions and 208 descriptors related to 12 CISM Dimensions including 72 key questions pertaining to the IACM dimensions. CISM analysis provides five benchmarks level of ethics and integrity in the organization as shown in Figure 2.


94

Figure 2 Five benchmarks level of CISM Source: Malaysian Institute of Integrity (IIM)

On the other hand, IACM analysis provides five capability levels of internal audit with six dimensions i.e. Service and Role of Internal Audit, People Management, Professional Practices, Performance Management and Accountability, Organizational Relationships and Culture and Governance Structure as shown in Table 5.

Asm

awat

i Saj

ari e

t al.

95

Tab

le 5

The

Mat

rix o

f Int

erna

l Aud

it C

apab

ility

Mod

el (I

IAR

F, 2

009)

Serv

ices

and

R

ole

of IA

Pe

ople

M

anag

emen

t Pr

ofes

sion

al

Prac

tices

Perf

orm

ance

M

anag

emen

t an

d A

ccou

ntab

ility

Org

aniz

atio

nal

Rel

atio

nshi

p an

d C

ultu

re

Gov

erna

nce

Stru

ctur

es

Lev

el 5

O

ptim

izin

g

- IA

R

ecog

nize

d as

Key

Age

nt

of C

hang

e

- Lea

ders

hip

Invo

lvem

ent

with

Pr

ofes

siona

l B

odie

s - W

orkf

orce

Pr

ojec

tion

- Con

tinuo

us

Impr

ovem

ent

in

Prof

essi

onal

Pr

actic

es

- Stra

tegi

c IA

Pl

anni

ng

- Pub

lic

Rep

ortin

g of

IA

Ef

fect

iven

ess

- Effe

ctiv

e an

d O

ngoi

ng

Rel

atio

nshi

ps

- Ind

epen

denc

e, P

ower

, an

d A

utho

rity

of th

e IA

A

ctiv

ity

Lev

el 4

M

anag

ed

- Ove

rall

Ass

uran

ce o

f G

over

nanc

e,

Ris

k M

anag

emen

t, an

d C

ontro

l

- IA

C

ontri

bute

s to

M

anag

emen

t D

evel

opm

ent

- IA

Act

ivity

Su

ppor

ts

Prof

essio

nal

Bod

ies

- Wor

kfor

ce

Plan

ning

- Aud

it St

rate

gy

Leve

rage

s O

rgan

izat

ion’

s M

anag

emen

t of

Ris

k

- Int

egra

tion

of

Qua

litat

ive

and

Qua

ntita

tive

Perf

orm

ance

M

easu

res

- CA

E A

dvis

es

and

Influ

ence

s To

p-le

vel

Man

agem

ent

- Ind

epen

dent

Ove

rsig

ht

of th

e IA

Act

ivity

- C

AE

Rep

orts

to T

op-

leve

l Aut

horit

y

Leve

l of E

thic

s and

Inte

grity

and

Inte

rnal

Aud

it C

apab

ility

: A C

ompa

riso

n of

two

Mal

aysi

an P

ublic

Sec

tor O

rgan

izat

ion

96

Tabl

e 5

The

Mat

rix o

f Int

erna

l Aud

it Ca

pabi

lity

Mod

el (I

IAR

F, 2

009)

(con

tinue

d)

- S

ervi

ces a

nd

Rol

e of

IA

- Peo

ple

Man

agem

ent

- Pro

fess

iona

l Pr

actic

es

- Per

form

ance

M

anag

emen

t an

d A

ccou

ntab

ility

- Org

aniz

atio

nal

Rel

atio

nshi

p an

d C

ultu

re

- Gov

erna

nce

Stru

ctur

es

Lev

el 3

In

tegr

ated

- Adv

isor

y se

rvic

es

- Per

form

ance

/ V

alue

-for-

Mon

ey

Aud

its

- Tea

m B

uild

ing

and

Com

pete

ncy

- Pro

fess

iona

lly

Qua

lifie

d St

aff

- Wor

kfor

ce

Coo

rdin

atio

n

- Qua

lity

Man

agem

ent

Fram

ewor

k - R

isk-

base

d A

udit

Plan

s

- Per

form

ance

M

easu

res

- Cos

t In

form

atio

n - I

A

Man

agem

ent

Rep

orts

- Coo

rdin

atio

n w

ith o

ther

R

evie

w G

roup

s - I

nteg

ral

Com

pone

nt o

f M

anag

emen

t Te

am

- Man

agem

ent

Ove

rsig

ht o

f th

e IA

Act

ivity

- F

undi

ng

Mec

hani

sms

Lev

el 2

In

fras

truc

ture

- Com

plia

nce

Aud

iting

- I

ndiv

idua

l Pr

ofes

sion

al

Dev

elop

men

t - S

kille

d Pe

ople

Id

entif

ied

and

Rec

ruite

d

- Pro

fess

iona

l Pr

actic

es a

nd

Proc

esse

s Fr

amew

ork

- Aud

it Pl

an

base

d on

M

anag

emen

t / S

take

hold

er

Prio

ritie

s

- IA

Ope

ratin

g B

udge

t - I

A B

usin

ess

Plan

- Man

agin

g w

ithin

the

IA

Act

ivity

- Ful

l Acc

ess t

o th

e O

rgan

izat

ion’

s In

form

atio

n,

Ass

ets,

and

Peop

le

- Rep

ortin

g R

elat

ions

hips

Es

tabl

ishe

d

Lev

el 1

In

itial

No

spec

ific

Key

Pro

cess

Are

as;

Ad

hoc o

r uns

truct

ured

; Iso

late

d si

ngle

audi

ts o

r rev

iew

s of d

ocum

ents

and

trans

actio

ns fo

r acc

urac

y an

d co

mpl

ianc

e;

Out

puts

dep

ende

nt u

pon

the

skill

s of t

he sp

ecifi

c pe

rson

hol

ding

the

posi

tion;

No

prof

essi

onal

pra

ctic

es e

stab

lishe

d ot

her t

han

thos

e pr

ovid

ed b

y pr

ofes

sion

al a

ssoc

iatio

ns; F

undi

ng a

ppro

val b

y m

anag

emen

t, as

nee

ded;

Abs

ence

of

infra

stru

ctur

e; A

udito

rs a

re li

kely

par

t of a

larg

er o

rgan

izat

iona

l uni

t; In

stitu

tiona

l cap

abili

ty is

not

dev

elop

ed.

Sour

ce: I

nstit

ute

of In

tern

al A

udito

r Res

earc

h Fo

unda

tion

(200

9


97

FINDINGS AND DISCUSSION

Profile of organizations

The first case study is an internal audit unit from one of the federal statutory bodies (FSB). It is a public university that offers a wide range of skills-based tertiary education programs and practical-based tertiary education in engineering, science and technology. Its research focuses on applied research and industrial projects to enrich the teaching and learning processes as well as to promote the commercialization of research products, thus exposing students to the latest research and development activities in the industries. The university is committed to the development of human capital and technology to fulfil the needs of the industries as well as to contribute to the country’s overall development. The internal audit unit in FSB was established since 2003 and at the time the research was conducted, it holds three major portfolios i.e. internal audit, integrity unit and risk management. The unit assists and acts as a consultant to the university to ensure the resources are managed and administered in accordance with all regulations. It carries out the accountability index rating, financial management audits, performance audits and ICT audits. In the university board meeting No 1/99, the resolution for the establishment of the audit committee (AC) has been approved. Three non-executive board members are appointed. The AC meeting should be held at least four times a year or more based on the circumstances/necessity. The head of internal audit unit reports functionally to the Audit Committee and administratively to the vice chancellor (VC). He communicates and interacts directly with the AC and is included in the executive sessions and meetings whenever required. Under secrecy and accountability to protect records and information strictly, the unit is fully authorized and given unrestricted access to all records, physical property and any related materials while carrying out their roles and responsibilities. At least once a year, the audit plan must be submitted to the AC and VC for review and approval. A written report will be prepared and issued after the completion of each audit task. It contains management response and corrective action that has been taken or is based on the specific findings and recommendations. This report will then be submitted to the AC with a copy to the VC, registrar, treasurer, legal officer and the auditee. Matters that are exposed to high risks, internal controls and governance that have not been resolved will be presented/reported to the AC at the meeting. The unit is responsible to follow up on findings and actions taken by the auditee based upon the recommendations. All significant findings will remain the key issues to be tackled until they are resolved. A copy of the audit report

Level of Ethics and Integrity and Internal Audit Capability: A Comparison of Two Malaysian Public Sector Organisations

98

that had been approved by the university’s Board of Directors will be sent to the General Secretary of the Ministry of Higher Education Malaysia (MOHE) to comply with the General Circular No. 3/1998 Paragraph 7.2.2 and Financial Circular No. 2/2006 Paragraph 5.

The second case study i.e. state statutory body (SSB) is also originally head of internal audit division. SSB serves as the foundation to further the advancement of education, sports, culture and expand opportunities for education among citizens in the State. SSB aims to be the organization that is a catalyst for the development of world-class human capital which is important for the success of Vision 2020. There are four subsidiaries which are related to plantation, mining and education under SSB with a total of 82 staff altogether. The internal audit division of SSB started in 2008 where the warrant for the post of head of internal audit and assistant auditor were issued. Until 2010, no personnel had been officially appointed to fulfil the positions despite the National Audit Department had filed this issue in their audit for Accountability Index Rating. In 2010, the head of internal audit, a female, was elected and the internal audit division started to build up their roles and responsibilities with the help of the head of internal audit from the State. Until recently, the proper nomination for the Audit Committee is yet to be endorsed by the Board of Committee due to the replacement of a new Chief Executive Officer. Nevertheless, the current CEO gives full autonomy to the head of internal audit to carry out auditing task due to the limited number of staff. Operationally, the head of internal audit division report directly to the Chief Executive Officer. Administratively, the head of internal audit division of SSB is reporting to the head of department. In 2014, the State Secretary Officer has been given instruction to establish the integrity unit in conjunction with the mandate given by the Prime Minister’s Directive No Directive No.1, 2014., which calls for the establishment of the Integrity and Governance Committee in all ministries, state secretaries, departments and agencies in ministry. In a clause instructed by the State Secretary Officer, for those state departments and statutory bodies without the human resource to enable appointment of new head of integrity unit, then the head of internal audit unit must play the respective role. Since then, the head of internal audit division of SSB also serves as the chief integrity officer. As the head of integrity unit, she is required to report both functionally and administratively to the Chief Executive Officer. Despite not having direct experience in handling the ethics and integrity unit, she has great experience in audit practices (6 to less than 9 years). According to her, who is also a member of the Association of Chartered Certified Accountants (ACCA) UK; the job scope of both units is more or less the same which is related to compliance. Besides that, she is also given another portfolio that involves looking after


99

the investment division of SSB. Table 6 summarizes the overall case study profiles. Table 6 Summary of Case Studies Profile

Elements FSB SSB Type of Organization Federal Statutory Body State Statutory Body Head of Internal Audit Male Female Education Level Bachelor Degree Master Degree Professional Certificate Accounting –

Technician Level (CAT/AAT)

Association of Chartered Certified

Accountants (ACCA) Membership of Institute of Internal Auditor (IIA)

Yes No

Existence of Audit Committee

Yes No

Operational Reporting Level

Audit Committee Chief Executive Officer

Administrative Reporting Level

Chief Executive Officer Head of Department

Establishment 2003 2010 Portfolio Internal audit, integrity

and risk management Internal audit, integrity

and investment unit Experience relation with Ethics and integrity

12 to less than 15 years Six to less than 9 years

Professional Qualification regarding ethics and integrity

None None

No. of Staff 8 2 Average Years of Experience

9 to less than 12 years 6 to less than 9 years

Case reported in last five years

None Yes. Fraud

Results of CISM analysis

Analysis of the level of ethics and integrity in the two organizations reveals contrasting results. Table 7 shows the overall score of the level of ethics and integrity for both case studies to be more than 50% in all twelve dimensions. This indicates that both FSB and SSB are serious in initiating proper integrity mechanism into their daily activities at the workplace in order to maintain the highest levels of transparency, integrity and professionalism. Based on the overall score, SSB scored 70.85% while FSB scored 66.10%.


100

Table 7 Summary of CISM Dimensions Percentage Scores

Dimensions of Corporate Integrity System

FSB SSB

1) Vision and Mission 66.00 % 68.00 % 2) Leadership 68.06 % 68.00 % 3) Infrastructure 55.60 % 65.80 % 4) Legal Compliance, Policies and

Rules 71.20 % 79.80 %

5) Organizational Culture 65.06 % 70.67 % 6) Disciplinary and Reward Measures 60.00 % 68.33 % 7) Measurement, Research and

Assessment 68.80 % 79.00 %

8) Confidential Advice and Support 66.00 % 61.33 % 9) Ethics, Training and Education 66.07 % 62.27 % 10) Ethics Communication 65.07 % 65.33 % 11) Whistle blowing 69.33 % 77.67 % 12) Accountability 72.00 % 84.00 %

Overall Score 66.10 % 70.85 %

The lowest score for FSB is related to the infrastructure dimension (55.60%) while for SSB is related to the confidential advice and support dimension (61.33%). Only a few dimensions have achieved the 75% level in the case of SSB and they are related to (iii) Legal Compliance, Policies and Rules, (iv) Measurement, Research and Assessment, (iv) Whistleblowing and (v) Accountability, while all the dimensions are below 75% for the FSB. Score of 75% implies that the dimension is being practiced systematically. None of the dimensions achieved 100%, thus requiring further improvements for both the FSB and SSB. Table 8 in Appendix compares the five benchmark levels for FSB and SSB on each dimension. It also shows the descriptors/questions associated with each benchmark level and the score obtained.

As shown in Figure 3, SSB performed better than FSB in almost all dimensions except for dimensions related to Leadership, Confidential Advice and Support, and Ethics Communication. It is highly recommended that SSB focuses more on these three dimensions. The overall score for FSB is 66.10% which is slightly lower than SSB. The results have also revealed that the dimension related to infrastructure for FSB is significantly less compared to SSB.


101

Figure 3 Overall Scores of CISM Dimension

In this study, both the chief integrity units through its integrity unit serve as the internal controller for their respective organizations. According to one of the interviews conducted with the State’s head of internal audit, the integrity unit acts as the Disciplinary Committee for corrective measures. Prior to that, the internal audit unit is required to plan and conduct program on ethics and integrity to raise awareness and accountability of the organizations. SSB and FSB shared the same criteria whereby both the Chief Integrity Units are originally Head of Internal Audit Unit. Yet, SSB performs better than FSB in various dimensions except for Ethics, Training and Education as well Confidential Advice and Support dimension.

Public sector bodies should continue to conduct self-assessment in the coming years as part of its journey in driving the ethics and integrity initiative. The results of future self-assessment will not only allow comparisons to be made with current findings but more importantly, it allows the public sector to benchmark its practices and assess the effectiveness of its various improvement programs in the future.

Results of IACM analysis

Table 8 illustrates the summary of IACM analysis. It is found that the internal audit unit in FSB obtained higher capability level 2 (infrastructure) with KPA percentage of 76.0% while SSB only achieved capability level 1 even though the KPA score is higher (71.0%).


102

Table 9 Summary of IACM Analysis Dimensions Capability Level KPA

Percentage (%)

SSB FSB SSB FSB Services and Role of IA 2 2 83 % 53 % People Management 1 2 53 % 49 % Professional Practices 2 5 87 % 100

% Performance Management and Accountability

5 5 68 % 55 %

Organizational Relationships and Culture

2 5 83 % 100 %

Governance Structure 3 5 54 % 100 %

Overall Capability Level & KPA Percentage

1 2 71 % 76 %

SSB achieves level 5 (optimal) for the dimension of performance management and accountability. For the dimension of governance structure, SSB achieves level 3 (integrated). For the three dimensions related to services and role of internal audit, professional practices and organizational relationships and culture, SSB achieves level 2 (infrastructure). SSB scores poorly for people management dimension which is only level 1 (initial). The results for the overall capability in the case of SSB is only at level 1 (initial). FSB shows that it achieves level 5 (optimized) for four elements of IACM i.e. professional practices, performance management and accountability, organizational relationships and culture and governance structure while other two dimensions i.e. services and role of internal audit and people management, it only scored capability level 2. FSB scored 100% for three dimensions viz. professional practices, organizational relationships and culture and governance structure while for the SSB did not score 100% for any dimensions. Nevertheless, it obtained the higher KPA percentage score of 83% for services and role of internal audit dimension compared to FSB, which is only 53%. As for people management dimension, SSB also scored slightly higher compared to FSB which is less than 50%. For performance management and accountability dimension, SSB scored 68% while FSB only 55%. SSB only scored 83% for organizational relationships and culture compared to FSB which both scored 100%. SSB scored less for governance structure i.e. 54% compared to the maximum score obtained by FSB.


103

CONCLUSION

This study employed a case study method focusing on two organizations i.e. Federal Statutory Body (FSB) and State Statutory Body (SSB). The level of ethics and integrity as well as the level of internal audit capability in both organizations were assessed. Referring to the CISM Dimension, both FSB and SSB scored low in relation to infrastructure. Therefore, an office of integrity should be set up with full authority to implement ethical activities. The office can be headed by a Chief Integrity Officer with sufficient funding given to carry out their duties and promote and disseminate information on ethics and integrity. The CISM assessment conducted help FSB and SSB to understand which areas of ethics and integrity that would need improvement and aid the FSB and SSB to plan strategies to achieve the optimal level of ethics and integrity for their organizations. Meanwhile, analysis on internal audit in the public sector helps in assessing the effectiveness in the conduct of duties and efficiency in management of public resources. The results on capability level and KPA percentage indicate dimensions of capability such as services and role of Internal Audit, people management, professional practices, performance management and accountability, organizational relationship and culture, governance structure, and Internal auditor’s support, are factors contributing to the effectiveness of the internal audit function. Although there is no empirical evidence on the relationship between internal audit capability and the level of ethics and integrity, there is a possibility that an influence exists between both elements where the capability level and KPA percentage scored by SSB is lower than FSB. In fact, several fraud cases were found and reported by the head of internal audit unit cum head of integrity officer during the interview.

Therefore, this study contributes the research area in a number of ways. Firstly, this study is useful to raise awareness especially among the public employee to adopt good governance in various ways to ensure an organization is more to ethics and integrity environment in public sector. Secondly, it highlights the link between risk management structures and internal auditing. Findings of this study have policy implications for the government and the management of individual organizations in terms of defining the responsibilities of internal audit and making relevant decisions on resource commitments to internal audit services to equip the internal audit departments with the required portfolio of expertise. However, the results could not be generalized to all Malaysian public sector organizations. In future, an empirical quantitative study can be conducted to examine factors that can lead to higher level of ethics and integrity in the organisation especially the interrelationship between internal audit capabilities. A focus group or in-depth interview with a


104

larger sample and different types of organizations can also be conducted to explore the level of ethics of the organisation and what could be done to improve it.

ACKNOWLEDGEMENTS

This research was supported in part by a grant RDU 150367 from the Universiti Malaysia Pahang. A special thank you is dedicated to all research group members, Institute of Integrity Auditor Malaysia (IIM), Mrs. Rasidah Binti Abdul Karim, Head of Corporate Integrity Development Centre, Malaysian Anti-Corruption Academy (MACA), Mr Alan Kirupakaran, Governance Officer of Minister in the Prime Minister’s Department, Institute of Internal Auditor Malaysia (IIAM), National Audit Department (NAD) of Malaysia and associate members of FIM’s Governance and Integrity Centre (FGIC). The usual disclaimer applies.


105

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Asm

awat

i Saj

ari e

t al.

108

APP

EN

DIX

Tabl

e 8

Ana

lysi

s Com

paris

on o

f FSB

and

SSB

for E

ach

CIS

M D

imen

sion

Dim

ensi

on 1

- V

isio

n an

d G

oal s

how

s an

ove

rall

scor

e of

66.

00%

an

d 68

.00%

for F

SB a

nd S

SB, r

espe

ctiv

ely.

SSB

per

form

ed s

light

ly

bette

r th

an F

SB. I

n te

rms

of b

ench

mar

k le

vel,

initi

ativ

es t

aken

by

SSB

cov

ered

the

mos

t at 7

5% b

ench

mar

k le

vel.

To im

prov

e fu

rther

, it

need

s to

do

mor

e in

term

s of

des

crip

tors

Q15

-Q19

whi

ch a

re a

ll re

late

d to

th

e em

ploy

ees

beha

ving

in

a

way

to

ac

hiev

e th

e or

gani

zatio

n’s

visio

n an

d et

hica

l act

ion.

Im

prov

emen

ts c

an a

lso b

e m

ade

to e

nsur

e th

at th

e et

hics

and

inte

grity

leve

l of t

he o

rgan

izat

ions

ar

e fre

quen

tly b

ench

mar

ked.

Im

prov

emen

ts a

re a

lso

need

ed fo

r Q

5 w

here

eth

ics

shou

ld n

ot b

e to

lera

ted

only

bec

ause

it

wou

ld b

e po

litic

ally

inc

orre

ct t

o fa

il to

men

tion.

Mea

nwhi

le,

for

FSB

, th

e de

scrip

tors

Q7-

Q10

show

ethi

cal c

ondu

ct is

seen

as a

requ

irem

ent f

or

orga

niza

tiona

l and

indi

vidu

al p

erfo

rman

ce.

Perc

enta

ge

Des

crip

tors

B

ench

mar

k FS

B

SSB

0%

Q

1-2

0 40

20

25

%

Q3-

6 25

50

45

50

%

Q7-

10

50

80

95

75%

Q

11-1

4 75

80

10

0 10

0%

Q15

-19

100

80

80

Leve

l of E

thic

s and

Inte

grity

and

Inte

rnal

Aud

it C

apab

ility

: A C

ompa

riso

n of

two

Mal

aysi

an P

ublic

Sec

tor

Org

aniz

atio

n

109

Tabl

e 8

Ana

lysi

s Com

paris

on o

f FSB

and

SSB

for E

ach

CIS

M D

imen

sion

(con

tinue

d)

Dim

ensi

on 2

- Lea

ders

hip

show

s an

over

all s

core

of 6

8.00

%fo

r FSB

an

d 68

.06%

for

SSB

. In

term

s of

ben

chm

ark

leve

l, SS

B c

over

s th

e m

ost d

escr

ipto

rs a

t 50%

. It s

till n

eeds

to im

prov

e on

the

acce

ptan

ce

of r

espo

nsib

ility

and

scr

ipts

to

disc

uss

ethi

cs a

nd i

nteg

rity.

The

de

scrip

tors

Q4-

7 fo

r FS

B i

s lo

wer

to

conc

lude

tha

t th

e le

ader

ship

ac

cept

som

e re

spon

sibi

lity

for

ethi

cs e

spec

ially

rel

ated

to S

tand

ard

Empl

oyee

Rel

atio

ns a

nd H

uman

Res

ourc

es p

ract

ises.

Perc

enta

ge

Des

crip

tors

B

ench

mar

k FS

B

SSB

0%

Q

1-3

0 53

20

25

%

Q4-

7 25

45

60

50

%

Q8-

11

50

80

100

75%

Q

12-1

6 75

72

80

10

0%

Q17

-21

100

80

80

Asm

awat

i Saj

ari e

t al.

110

Tabl

e 8

Ana

lysi

s Com

paris

on o

f FSB

and

SSB

for E

ach

CIS

M D

imen

sion

(con

tinue

d)

Dim

ensi

on 3

- In

fras

truc

ture

sho

ws

the

over

all

scor

e fo

r SS

B

(65.

80%

) is

hig

her

com

pare

d to

FSB

(66

.10%

). SS

B s

core

mos

t de

scrip

tors

at 5

0% a

nd 7

0% b

ench

mar

k le

vel.

FSB

sco

red

less

for

desc

ripto

rs Q

13-1

7. I

t in

dica

tes

that

inf

rast

ruct

ure

of c

orpo

rate

in

tegr

ity s

yste

m (C

IS) a

t FSB

is b

eyon

d th

e sy

mbo

lic a

ctio

ns o

nly.

A

t thi

s lev

el, t

he c

hief

inte

grity

offi

cers

em

phas

ized

less

on

inte

grity

in

frast

ruct

ure

to su

ppor

t org

aniz

atio

ns to

car

ry o

n its

inte

grity

goa

ls

effe

ctiv

ely.

Perc

enta

ge

Des

crip

tors

B

ench

mar

k FS

B

SSB

0%

Q

1 0

40

20

25%

Q

2-3

25

40

30

50%

Q

4-8

50

72

92

75%

Q

9-12

75

88

95

10

0%

Q13

-17

100

56

92

Leve

l of E

thic

s and

Inte

grity

and

Inte

rnal

Aud

it C

apab

ility

: A C

ompa

riso

n of

two

Mal

aysi

an P

ublic

Sec

tor

Org

aniz

atio

n

111

Tabl

e 8

Ana

lysi

s Com

paris

on o

f FSB

and

SSB

for E

ach

CIS

M D

imen

sion

(con

tinue

d)

Dim

ensi

on 4

- Leg

al C

ompl

ianc

e, P

olic

ies

and

Rul

es s

how

s th

at

the

over

all s

core

for S

SB is

bet

ter t

han

FSB

with

79.

80%

com

pare

d to

71.

20%

. SSB

nee

ds to

impr

ove

on (i

) writ

ten

polic

ies

and

rule

s ab

out

ethi

cs,

inte

grity

, an

d co

mpl

ianc

e, (

ii) a

dopt

ing

a co

de o

f co

nduc

t (o

r co

de o

f et

hics

) w

hich

out

lines

bas

ic g

uida

nce

abou

t le

gal

com

plia

nce

for

empl

oyee

s, (ii

i) pr

epar

ing

the

polic

ies

and

rule

s in

dua

l la

ngua

ge i

.e.

Baha

sa M

elay

u or

Eng

lish-

lang

uage

ve

rsio

n, a

nd (i

v) e

nsur

ing

that

the

orga

niza

tion’

s cod

e of

cond

uct i

s gl

obal

yet

add

ress

es le

gal v

aria

tions

acr

oss c

ount

ries.

For F

SB, i

t is

reco

mm

ende

d th

at th

e in

tegr

ity o

ffice

r mus

t im

prov

e to

hav

e a

dual

re

porti

ng r

elat

ions

hip

with

sen

ior

man

agem

ent

and

the

boar

d of

di

rect

ors.

Perc

enta

ge

Des

crip

tors

B

ench

mar

k FS

B

SSB

0%

Q

1 0

40

20

25%

Q

2-4

25

80

100

50%

Q

5-8

50

80

100

75%

Q

9-13

75

76

84

10

0%

Q14

-17

100

80

95

Asm

awat

i Saj

ari e

t al.

112

Tabl

e 8

Ana

lysi

s Com

paris

on o

f FSB

and

SSB

for E

ach

CIS

M D

imen

sion

(con

tinue

d)

Dim

ensi

on 5

- O

rgan

izat

iona

l Cul

ture

sho

ws

that

ove

rall

scor

e fo

r SS

B (

70.6

%)

is h

ighe

r th

an F

SB (

65.0

6%).

In t

erm

s of

be

nchm

ark

leve

l, bo

th

case

st

udie

s sc

ored

eq

ually

w

ell

at

benc

hmar

k le

vel 7

5%. T

o ac

hiev

e 10

0% b

ench

mar

k le

vel,

SSB

an

d FS

B sh

ould

impr

ove

on (i

) jus

tific

atio

n on

vio

latio

ns o

f rul

es

and

stan

dard

s by

ref

errin

g to

nat

iona

l cu

lture

or

prac

tice

(ii)

iden

tific

atio

n of

int

egrit

y ro

le m

odel

s in

the

cur

rent

lea

ders

hip

rank

s as w

ell a

s in

the o

rgan

izat

ion’

s pas

t lea

ders

(iii)

ens

urin

g th

e or

gani

zatio

n is

tra

nspa

rent

abo

ut i

ts c

omm

itmen

ts t

o et

hics

and

in

tegr

ity a

nd is

will

ing

to s

hare

bot

h su

cces

ses

and

failu

res

with

in

tern

al

and

exte

rnal

au

dien

ces.

SSB

ne

eds

to

ensu

re

that

em

ploy

ees

feel

saf

e to

spe

ak o

ut a

bout

wro

ngdo

ings

of o

ther

s in

th

e or

gani

zatio

n.

Perc

enta

ge

Des

crip

tors

B

ench

mar

k FS

B

SSB

0%

Q

1-3

0 53

33

25

%

Q4-

7 25

40

60

50

%

Q8-

11

50

80

100

75%

Q

12-1

5 75

80

80

10

0%

Q16

-17

100

72

80

Leve

l of E

thic

s and

Inte

grity

and

Inte

rnal

Aud

it C

apab

ility

: A C

ompa

riso

n of

two

Mal

aysi

an P

ublic

Sec

tor

Org

aniz

atio

n

113

Tabl

e 8

Ana

lysi

s Com

paris

on o

f FSB

and

SSB

for E

ach

CIS

M D

imen

sion

(con

tinue

d)

Dim

ensi

on 6

- D

isci

plin

ary

and

Rew

ard

Mea

sure

s sh

ows

an

over

all

scor

e of

68

.33%

an

d 60

.00%

fo

r SS

B

and

FSB

, re

spec

tivel

y. S

SB f

ulfil

led

mos

t de

scrip

tors

at

benc

hmar

k le

vel

75%

and

100%

. But

SSB

shou

ld im

prov

e on

impo

sing

dis

cipl

inar

y m

easu

res w

hen

appr

opria

te. F

SB sh

ould

also

impr

ove

on th

e sa

me

desc

ripto

rs a

s w

ell

as (

i) al

way

s ad

dres

ses

cons

eque

nces

for

un

ethi

cal

beha

viou

r in

the

org

aniz

atio

n no

t on

ly i

f it

adve

rsel

y im

pact

s bu

sine

ss

resu

lts,

and

(ii)

dire

ctly

ad

dres

sed

unfa

ir tre

atm

ent e

spec

ially

by

man

agem

ent i

n th

e or

gani

zatio

n.

Perc

enta

ge

Des

crip

tors

B

ench

mar

k FS

B

SSB

0%

Q

1-3

0 40

27

25

%

Q4-

5 25

40

40

50

%

Q6-

9 50

60

85

75

%

Q10

-13

75

60

100

100%

Q

14-2

0 10

0 80

90

Asm

awat

i Saj

ari e

t al.

114

Tabl

e 8

Ana

lysi

s Com

paris

on o

f FSB

and

SSB

for E

ach

CIS

M D

imen

sion

(con

tinue

d)

For

dim

ensi

on 7

- M

easu

rem

ent,

Res

earc

h an

d A

sses

smen

t, SS

B

scor

ed h

ighe

r at 7

9.00

% co

mpa

red

to F

SB (6

8.80

%).

Bot

h ca

ses s

houl

d co

nsid

er (

i) dr

awin

g m

axim

al d

istin

ctio

ns b

etw

een

seek

ing

ethi

cal

advi

ce v

ersu

s see

king

lega

l adv

ice,

(ii)

enco

urag

ing

empl

oyee

s to

spea

k di

rect

ly to

thei

r lea

ders

if th

ey h

ave

ques

tions

abo

ut e

thic

s, in

tegr

ity, o

r co

mpl

ianc

e an

d (ii

i) pr

ovid

ing

priv

ate

offic

e in

side

of t

he o

pera

tiona

l ch

ain

of co

mm

and.

Mor

eove

r, th

e le

ader

s sho

uld

(i) ac

tivel

y en

cour

age

staf

f to

obta

in e

thic

s adv

ice

whe

neve

r he/

she

perc

eive

s or b

elie

ves t

hat

an e

thic

al i

ssue

has

aris

en,

(ii)

ensu

re c

onfid

entia

lity

of t

he e

thic

s ad

viso

ry p

roce

ss a

t all

leve

ls o

f the

org

aniz

atio

n, a

nd (i

ii) a

utho

rizat

ion

of th

e in

tegr

ity u

nit f

or is

suin

g “s

afe

harb

our”

lette

rs so

that

em

ploy

ees

seek

ing

advi

ce a

re r

eass

ured

that

they

can

not b

e di

scip

lined

bec

ause

th

ey re

lied

upon

that

adv

ice.

Perc

enta

ge

Des

crip

tors

B

ench

mar

k FS

B

SSB

0%

Q

1 0

40

20

25%

Q

2-4

25

80

100

50%

Q

5-8

50

80

100

75%

Q

9-12

75

80

95

10

0%

Q13

-Q17

10

0 64

80

Leve

l of E

thic

s and

Inte

grity

and

Inte

rnal

Aud

it C

apab

ility

: A C

ompa

riso

n of

two

Mal

aysi

an P

ublic

Sec

tor

Org

aniz

atio

n

115

Tabl

e 8

Ana

lysi

s Com

paris

on o

f FSB

and

SSB

for E

ach

CIS

M D

imen

sion

(con

tinue

d)

Dim

ensi

on 8

- C

onfid

entia

l Adv

ice

and

Res

earc

h sh

ows

that

the

over

all p

erce

ntag

e ob

tain

ed b

y SS

B is

61.

33%

whi

le F

SB is

66.

00%

. N

one

of t

he

case

s sc

ored

100

% o

f th

e de

scrip

tors

for

eac

h be

nchm

ark.

Bot

h ca

ses

need

im

med

iate

im

prov

emen

t on

sev

eral

cr

iteria

. The

chie

f eth

ics/

inte

grity

offi

cer i

s enc

oura

ged

to cr

ossc

heck

th

e ad

vice

s gi

ven

with

the

com

pany

’s c

hief

leg

al o

ffice

r. A

ll em

ploy

ees

in t

he o

rgan

izat

ions

inc

ludi

ng s

enio

r ex

ecut

ive

and

mem

bers

of t

he b

oard

of d

irect

ors n

eed

to b

e co

mfo

rtabl

e in

seek

ing

inde

pend

ent,

conf

iden

tial,

neut

ral

advi

ce.

Thes

e or

gani

zatio

ns

shou

ld e

stabl

ish “

conf

iden

tial o

ffice

s” to

pro

vide

eth

ics

advi

ce a

nd

coun

selli

ng fo

r em

ploy

ees.

Perc

enta

ge

Des

crip

tors

B

ench

mar

k FS

B

SSB

0%

Q

1 0

40

20

25%

Q

2-5

25

75

69

50%

Q

6-9

50

70

60

75%

Q

10-1

2 75

80

87

10

0%

Q13

-16

100

80

85

Asm

awat

i Saj

ari e

t al.

116

Tabl

e 8

Ana

lysi

s Com

paris

on o

f FSB

and

SSB

for E

ach

CIS

M D

imen

sion

(con

tinue

d)

Dim

ensi

on 9

- E

thic

s, T

rain

ing

and

Edu

catio

n sh

ows

that

the

ov

eral

l sco

re fo

r SSB

and

FSB

are

62.2

7% an

d 66

.07%

, res

pect

ivel

y.

In t

erm

s of

ben

chm

ark

leve

l, no

ne o

f th

em f

ulfil

led

100%

of

the

desc

ripto

rs. Y

et, F

SB s

core

d hi

gher

tha

n SS

B a

t 75

% l

evel

. Bot

h or

gani

zatio

ns s

houl

d im

prov

e on

trai

ning

pro

gram

s of

inte

grity

and

fo

cus

on i

nfor

min

g em

ploy

ees

abou

t po

licie

s an

d m

eetin

g le

gal

requ

irem

ents

. In

ord

er t

o ac

hiev

e 10

0% b

ench

mar

k le

vel,

the

orga

niza

tions

sho

uld

impr

ove

on (i

) sta

ff of

the

inte

grity

func

tion

to

help

des

ign,

dev

elop

, de

liver

, an

d re

info

rce

the

lear

ning

fro

m

train

ing,

(ii)

prov

idin

g m

inim

um n

umbe

r of s

tate

-of-

the-

art i

nteg

rity

train

ing

per

year

to a

ll bo

ard

mem

bers

all

empl

oyee

s an

d (ii

i) ea

ch

orga

niza

tion

shou

ld g

o to

the

exte

nt o

f” re

cogn

izin

g an

d re

war

ding

” et

hica

l be

havi

our

and

supp

orts

ap

prop

riate

di

scip

line

whe

n ne

cess

ary.

Perc

enta

ge

Des

crip

tors

B

ench

mar

k FS

B

SSB

0%

Q

1 0

40

27

25%

Q

2-3

25

40

40

50%

Q

4-8

50

60

85

75%

Q

9-14

75

60

10

0 10

0%

Q15

-18

100

80

90

Leve

l of E

thic

s and

Inte

grity

and

Inte

rnal

Aud

it C

apab

ility

: A C

ompa

riso

n of

two

Mal

aysi

an P

ublic

Sec

tor

Org

aniz

atio

n

117

Tabl

e 8

Ana

lysi

s Com

paris

on o

f FSB

and

SSB

for E

ach

CIS

M D

imen

sion

(con

tinue

d)

Dim

ensi

on

10-

Eth

ics

Com

mun

icat

ions

sh

ows

that

ov

eral

l pe

rcen

tage

for S

SB a

nd F

SB a

re 6

5.33

% a

nd 6

5.07

%, r

espe

ctiv

ely.

In

term

s of

ben

chm

ark

leve

l, no

ne o

f the

m is

fully

ach

ieve

d. B

oth

SSB

and

FSB

shou

ld im

prov

e on

the d

escr

ipto

rs li

sted

in b

ench

mar

k le

vel 2

5% s

ince

they

sco

re m

ore

than

50%

. Thi

s ca

n be

don

e by

en

cour

agin

g th

e m

anag

ers t

o ta

lk ab

out i

nteg

rity

info

rmal

ly o

r on

an

ad h

oc b

asis.

Enc

oura

ging

goo

d fe

edba

ck o

n et

hics

and

inte

grity

for

gene

ral

staf

f an

d cu

stom

ers

surv

eys,

mar

ket

rese

arch

, in

tern

al

revi

ews a

nd c

limat

e st

udie

s are

solic

ited.

Perc

enta

ge

Des

crip

tors

B

ench

mar

k FS

B

SSB

0%

Q

1 0

40

20

25%

Q

2-Q

4 25

53

67

50

%

Q5-

7 50

80

80

75

%

Q8-

12

75

72

80

100%

Q

13-1

8 10

0 80

80

Asm

awat

i Saj

ari e

t al.

118

Tabl

e 8

Ana

lysi

s Com

paris

on o

f FSB

and

SSB

for E

ach

CIS

M D

imen

sion

(con

tinue

d)

Dim

ensi

on 1

1- W

hist

lebl

owin

g sh

ows o

vera

ll sc

ores

of 7

7.67

% an

d 96

.33%

for

SSB

and

FSB

, res

pect

ivel

y. S

SB p

erfo

rms

bette

r th

an

FSB

esp

ecia

lly a

t be

nchm

ark

leve

l 50

%. H

owev

er, S

SB n

eeds

to

impr

ove

on th

e or

gani

zatio

nal p

olic

ies

abou

t pro

tect

ing

empl

oyee

s fro

m re

talia

tion

or re

tribu

tion.

Oth

er a

ppro

ach

shou

ld b

e co

nsid

ered

to

mak

e th

e em

ploy

ees

able

to

dire

ctly

spe

ak a

bout

une

thic

al

beha

viou

r or m

isco

nduc

t. SS

B al

so sh

ould

impr

ove

on th

e po

licy

that

en

cour

ages

em

ploy

ees

to f

ollo

w t

he “

chai

n of

com

man

d” w

hen

faci

ng w

orkp

lace

iss

ues.

To a

chie

ve 1

00%

ben

chm

ark

leve

l, bo

th

case

s sh

ould

hav

e th

e su

perv

isor

s an

d m

anag

ers

rece

ive

train

ing

on

how

to re

cogn

ize

and

prev

ent r

etal

iatio

n. S

SB s

houl

d al

so c

onsi

der

on v

ictim

s of

reta

liatio

n to

be

fully

com

pens

ated

for l

oss

sust

aine

d.

Whi

le f

or F

SB, t

he o

rgan

izat

ion

shou

ld d

raw

min

imal

dis

tinct

ions

be

twee

n se

ekin

g et

hica

l adv

ice

vers

us se

ekin

g le

gal a

dvic

e.

Perc

enta

ge

Des

crip

tors

B

ench

mar

k FS

B

SSB

0%

Q

1 0

40

20

25%

Q

2-3

25

53

67

50%

Q

4-5

50

80

80

75%

Q

6-7

75

72

80

100%

Q

8-10

10

0 80

80

Leve

l of E

thic

s and

Inte

grity

and

Inte

rnal

Aud

it C

apab

ility

: A C

ompa

riso

n of

two

Mal

aysi

an P

ublic

Sec

tor

Org

aniz

atio

n

119

Tabl

e 8

Ana

lysi

s Com

paris

on o

f FSB

and

SSB

for E

ach

CIS

M D

imen

sion

(con

tinue

d)

Dim

ensi

on 1

2- A

ccou

ntab

ility

show

s tha

t SSB

scor

e hig

her (

84.0

%)

than

FSB

BT2

.0%

. In

term

s of b

ench

mar

k le

vel,

SSB

per

form

s bet

ter

at le

vel 5

0%, 7

5% a

nd 1

00%

; but

it h

as to

impr

ove

the

reac

tions

or

resp

onse

to a

udit/

offic

ial’s

inqu

iries

and

disc

lose

s inf

orm

atio

n w

hen

the d

iscl

osur

e ser

ves i

ts in

tere

st. F

SB ca

n im

prov

e its

org

aniz

atio

n by

pr

ovid

ing

finan

cial

reso

urce

s as

wel

l as e

mpl

oyee

s’ ti

me

and

labo

ur

in a

var

iety

of c

omm

unity

pro

ject

s.

Perc

enta

ge

Des

crip

tors

B

ench

mar

k FS

B

SSB

0%

Q

1-3

0 40

20

25

%

Q4-

5 25

80

10

0 50

%

Q6-

9 50

80

10

0 75

%

Q10

-13

75

76

84

100%

Q

14-2

0 10

0 80

95